Labour cost is the percentage of turnover that goes on staff. In restaurants, a healthy benchmark ranges from 25% to 35% depending on the type of venue.
Labour cost (staff cost) is the metric that expresses the percentage of a restaurant's revenue spent on paying its team. It is a restaurant's second-largest operating cost after food cost, and together they make up prime cost. Labour cost includes every cost associated with staff: gross wages (what appears on the employee's payslip), the employer's Social Security contributions (roughly an extra 30% on top of gross pay in Spain), the extra salary payments (usually two a year in hospitality, the pagas extra, spread across the months), overtime, pay supplements (night work, public holidays, productivity) and associated training costs. Some restaurants also include other related costs in labour cost: uniforms, staff meals, accident insurance and recruitment costs, although this varies with accounting practice.
Labour cost varies significantly with the type of restaurant: a QSR (Quick Service Restaurant / fast food) can operate with a labour cost of 20-25% thanks to extreme standardisation and a low level of service; a casual restaurant sits at 28-32%; and a fine-dining restaurant can reach 35-40% because of the intensity of service and its large kitchen brigades. Labour cost also fluctuates with the day and the hour: it is higher during quiet periods (same fixed staff, fewer sales) and more efficient at peak times.
Labour Cost % = (Total staff cost / Total sales excl. VAT) × 100
Labour cost is calculated by dividing total staff cost by turnover excluding VAT for the same period. Total staff cost includes: the gross wages of all employees (fixed and variable), the employer's Social Security contributions (~30% of gross pay), the extra payments spread across the months, overtime and any other supplements. If your restaurant turns over €55,000 a month (excluding VAT) and total staff cost is: gross payroll €11,500 + employer's Social Security €3,450 + extra payments spread monthly €1,400 = €16,350, labour cost is (16,350 / 55,000) × 100 = 29.7%. For a more precise analysis, you can calculate labour cost by service (lunch vs.
dinner), by day of the week or even by time slot, comparing the staff cost assigned to each period with the revenue it generated.
Your restaurant has 8 full-time employees (average cost to the business €2,200 a month each = €17,600) and 3 part-timers who cover the weekends (average cost €800 a month each = €2,400). Total monthly cost: €20,000. Average turnover is €58,000 a month, giving a labour cost of 34.5%. That is above the 30-32% benchmark for your type of venue.
You analyse it by day and find: Monday to Wednesday you take €8,000 a day with 6 employees working (equivalent labour cost ~50%); Thursday to Sunday you take €11,000 a day with 9 employees (labour cost ~33%). The problem lies in the quiet days. You reorganise the rota: on Tuesdays and Wednesdays you cut the team to 5 people and move those hours to Friday and Saturday. Overall labour cost falls to 31%, saving around €2,000 a month.
Labour cost is the most delicate lever to adjust when running a restaurant. Unlike food cost (which can be reduced by changing suppliers or recipes), labour cost involves people, with legal implications (dismissals, changes to working conditions), operational ones (service quality) and human ones (team motivation). Cutting labour cost by letting staff go may look effective in the short term, but if it damages service and leads to bad reviews, the impact on sales will outweigh the saving. Smart labour cost optimisation is not about having fewer staff, but about having the right staff at the right times.
That means analysing demand by time slot, designing flexible rotas, using part-time contracts to cover peaks, training multi-skilled staff who can move between kitchen and front of house, and automating tasks that do not need a person. Measuring productivity is also critical: sales per labour hour (which should be €25-40 depending on the type of restaurant) and covers per front-of-house employee (8-15 depending on the level of service).
Zindra calculates your labour cost automatically by bringing together payroll and sales data, breaks it down by day, service and time slot, and helps you design optimised rotas that balance cost against service cover.
Tools and content to go deeper into this concept.
The staffing ratio is the relationship between the number of employees and the restaurant's customers, tables or revenue. It tells you whether you have the right team to give good service without costs running away.
Prime cost (coste primo in Spanish) is food cost plus staff cost. It is the most complete measure of a restaurant's direct operating cost and should stay between 55% and 65% of turnover.
The staff rota is the document that plans and assigns each restaurant employee's working hours by day and time slot, making sure service is covered and the law is complied with.
Staff turnover measures the percentage of employees who leave the restaurant in a given period. In Spanish hospitality it exceeds 70% a year, creating hidden costs that can reach 150% of the salary of each leaver.
In the US restaurant management model, prime cost is the core KPI: food cost + labour cost. The standard benchmark is to stay below 60-65% of sales.
Every hospitality term with formulas, examples and benchmarks in a handy PDF.
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